Cash back cards become more generous with rewards

Cards rewarding 1.5%, 2% and even 2.5% now offered for the 'set it and forget it' crowd

Responding to strong demand for simple rewards, credit card
issuers are churning out new cards with bigger and bigger payouts of cash back.

For the past few years, cash back card reward programs have become generous – and complex. While they offer big sign-up bonuses and big payoffs, they require customers to track quarterly categories and jump through hoops to earn and spend points.

Now, card issuers are pursuing the “set it and forget it” crowd. Instead of complicated programs, they are offering straightforward rewards: Use your
credit card and receive a flat percentage rebated on your monthly statement.

Now 2 percent rates are becoming more common (Citi Double
Cash, Fidelity Rewards Visa and credit union PenFed’s new Power Cash Visa, for
example).

USAA last year started offering a
card – in certain states – that can earn 2.5 percent back on all purchases.

“For the last couple of years, cash back has been growing in
popularity, and it has a lot to do with the perceived ease of use around cash,”
says Marc Bellanger, senior strategy director with Merkle, a marketing agency
that works in the payments industry. “It’s easy to earn, easy to redeem and
easy to understand.”

The new, more-generous offers often come with strings attached, however. Some require you maintain another account at the same institution, regular direct deposit or that you qualify for a limited-membership credit union.

CASH BACK CARDS WITH THE LARGEST FLAT REWARDS RATE

Card

Annual fee

Cash back

Details

USAA Limitless Cashback Rewards Visa

$0

2.5%

Not available in all states. Requires monthly direct deposit of $1,000 into checking account. Must be a USAA member: Open to current/former military and their families.

With qualifying checking account or for former/current military members. Must be a member of credit union.

Bellanger says he thinks issuers will continue experimenting
with ways to attract customers with cash back offers, given their popularity.
The economics of credit cards, though, probably limit flat cash back cards from
going much above 2 percent.

Instead, he says, consumers might see more innovation around
staggering percentages in certain spending categories. For example, American
Express is offering new Blue
Cash Everyday and Blue
Cash Preferred cardholders 10 percent cash back at restaurants for six
months (topping out at $200).

There may also be caps on how much cash back you can receive
annually.

Citing industry data, Bellanger says that since 2013, offers
for cash back cards have risen by one-third, to 40 percent of all offers, while
cards with points-based rewards have fallen by one-third, to 25 percent of
offers.

People prefer cash back
Polls
show that people overwhelmingly prefer cash rewards to other rewards programs,
by a ratio of 3-to-1. Rival programs, such as travel rewards, mostly target wealthier
consumers and those with the highest credit scores. But cash back is more
popular even in those segments.

Still, cash back is a category of reward cards that doesn’t
seem too flashy, compared with travel reward cards that dangle perks such as
huge sign-up bonuses, free trips, airport lounge passes and free hotel rooms. To
maximize the value, though, some reward programs require understanding points-transfer
rules and airline routings – details that can be time-consuming and challenging
to master.

While travel reward cards typically charge annual fees, cash back
cards usually don’t. Cash back cards also usually have meager or no sign-up bonuses.

A 2016
J.D. Power study found that more than 20 percent of credit card customers
have a card that is poorly aligned with their spending habits and reward
preferences. The mismatch is even higher – 44 percent – among people with airline cards.

Those findings suggest that in many cases, consumers might
opt for a travel card because they like the idea of crisscrossing the globe
with frequent flier miles, when in reality they might be financially better off
with a simple-to-use cash back card.

“Oftentimes, consumers may be picking the reward type based
on their aspirations,” says Tiffani Montez, senior analyst of card issuance
with Aite Group, a financial services consulting firm. “It might not be a true
reflection of how and where they spend their money.”

Challenges of airline
cards
Deborah Goldberg, 39, of Charlotte, North Carolina, says she used to have two
cards – a Discover
it card that offers 5 percent back on rotating categories each quarter and
1 percent everywhere else; and a Bank
of America Cash Rewards Visa that offers 3 percent back on gas, 2 percent
on groceries and 1 percent on everything else.

Then she added a Citi
AAdvantage card to earn miles for a trip, but she says the American Airlines card takes a
little work to figure out the rewards.

“I find it annoying that I have to analyze it to see what I
actually have, as opposed to a straight cash back card,” she says.

She uses the Discover rewards to buy gift cards for movies
or children’s clothing retailers. The Bank of America cash goes straight into
her bank account, which earns a 10 percent bonus.

Cash back complexities
Even with cash back cards, there are different levels of complexity.

Some cash back cards offer bonuses for
spending in certain fixed categories. Other cards offer 5 percent back in
categories that rotate each quarter. And then there are the flat reward cards
that offer a fixed percentage back, regardless of where the card is used.

Some consumers pursue a strategy of using multiple cards –
say, using one card at stores where the card earns big category bonuses,
combined with a second card that offers a high rate on all other purchases.

John Kelly, senior vice president of payment products and
services for PenFed, says the credit union chose to introduce its cash back
card in February 2017 after realizing that its customers wanted a
straightforward rewards program.

Customers expect ease-of-use from their credit cards, he
says, just as they find in other facets of life, such as calling Uber or
ordering items on Amazon.

He said the card is exceeding
expectations, even with minimal advertising.

“What works in this space is simplicity and being easy to
understand. There are no ‘gotchas,’” he says. “What we are seeing in rewards,
consistently, is that cash is king.”

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Contact

Related Sites

ADVERTISER DISCLOSURE
CreditCards.com is an independent, advertising-supported comparison service. The offers that appear on this site
are from companies from which CreditCards.com receives compensation. This compensation may impact how and where
products appear on this site, including, for example, the order in which they appear within listing categories.
Other factors, such as our proprietary website's rules and the likelihood of applicants' credit approval also
impact how and where products appear on the site. CreditCards.com does not include the entire universe of available
financial or credit offers.

CARDMATCH™ is a free, secure service that will not affect your credit score. Simply provide your basic information, and view offers that match your credit profile within seconds.

Advertiser Disclosure

CreditCards.com is an independent, advertising-supported comparison service. The offers that appear on this site are from companies from which CreditCards.com receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within listing categories. Other factors, such as our own proprietary website rules and the likelihood of applicants' credit approval also impact how and where products appear on this site. CreditCards.com does not include the entire universe of available financial or credit offers.